There is a prob­lem with Sars’ penal­ties

CityPress - - Business - Pa­tri­cia Wil­liams busi­ness@city­ Wil­liams is a part­ner in Bow­mans tax prac­tice

The SA Rev­enue Ser­vice (Sars) will im­pose new ad­min­is­tra­tive penal­ties for non-sub­mis­sion of cor­po­rate in­come tax re­turns from De­cem­ber 7, but much more se­ri­ous penal­ties loom for cor­po­rates, as well as in­di­vid­u­als and trusts.

The rel­e­vant Gov­ern­ment Gazette will be is­sued to “trig­ger” these ad­min­is­tra­tive penal­ties, which are al­lowed in terms of the Tax Ad­min­is­tra­tion Act, pro­vided the penal­ties are ap­pro­pri­ately gazetted.

The ad­min­is­tra­tive penalty for late sub­mis­sion of a tax re­turn ranges be­tween R250 and R16 000, de­pend­ing on the “size” of the com­pany, mea­sured by its tax­able in­come or by be­ing part of a group of com­pa­nies in which there is a listed com­pany or a “high­turnover” com­pany, nor­mally R500 mil­lion a year.

There is an ini­tial penalty which, for every month the tax re­turn is still not sub­mit­ted, in­creases by the same amount.

Given Sars’ re­cent ad­mis­sions re­gard­ing sub­stan­tial ir­recov­er­abil­ity of its debt book, this type of ef­fort to get tax­pay­ers to sub­mit re­turns should be wel­comed.

Since an in­come tax li­a­bil­ity is as­sessed only when the re­turn is sub­mit­ted, fail­ure to sub­mit in­come tax re­turns can eas­ily lead to tax debts “pil­ing up” and be­ing ir­recov­er­able by the time Sars fi­nally takes ac­tion.

Un­der the cir­cum­stances, get­ting tax re­turn sub­mis­sions up to date is an im­por­tant func­tion to pro­tect the fis­cus.

Of course, the im­mi­nent penal­ties mean that a lot of work will need to be done by a lot of peo­ple: Sars has in­di­cated that there are cur­rently more than 300 000 over­due cor­po­rate in­come tax re­turns.

Although many peo­ple are in a flurry about these new penal­ties and the work that will be needed, there are, in fact, far big­ger is­sues lurk­ing be­neath the sur­face.

Sars is pub­licly alert­ing tax­pay­ers to the new ad­min­is­tra­tive penal­ties and un­der­tak­ing to is­sue let­ters to the af­fected tax­pay­ers, fol­lowed by fi­nal-de­mand let­ters, be­fore is­su­ing these ad­min­is­tra­tive penal­ties.

In con­trast, no spe­cific warn­ing or public­ity cam­paign is un­der way for the much more se­ri­ous penalty pro­vi­sions Sars is in­tro­duc­ing for non-sub­mis­sion of re­turns in the cur­rent leg­isla­tive cy­cle.

The Tax Ad­min­is­tra­tion Laws Amend­ment Act 2018 should be pro­mul­gated in De­cem­ber 2018 or Jan­uary 2019.

The draft bill, as pub­lished in July this year, in­tro­duces amend­ments to the un­der­state­ment penal­ties for fail­ure to sub­mit a re­turn, so that penal­ties of be­tween 25% and 100% of the en­tire tax bill for the whole tax year may be im­posed by Sars (de­pend­ing on whether the late­ness of the re­turn is con­sid­ered negligent or grossly negligent).

This alarm­ing is­sue was iden­ti­fied in writ­ten sub­mis­sions made to Trea­sury and Sars in the draft bill and in ver­bal sub­mis­sions dur­ing pub­lic work­shops.

It was high­lighted that ad­min­is­tra­tive penal­ties are al­ready en­vis­aged for this type of omis­sion and that fur­ther pe­nal­i­sa­tion, par­tic­u­larly of such a se­vere po­ten­tial ex­tent, is not fair and rea­son­able.

It was ar­gued there is a crit­i­cal dif­fer­ence in blame­wor­thi­ness when a re­turn is filed late, ver­sus a re­turn sim­ply not be­ing filed at any stage (po­ten­tially be­cause a per­son in­tends to evade tax through not reg­is­ter­ing and not fil­ing re­turns).

Thus, the ar­gu­ment went, there should be some form of spec­i­fied time pe­riod or process be­fore a late sub­mis­sion can be con­sid­ered a “fail­ure to sub­mit a re­turn” as en­vis­aged in the un­der­state­ment penalty regime.

For ex­am­ple, in the case of a tax­payer al­ready regis­tered for the rel­e­vant tax, the re­quire­ment could be that Sars must have al­ready im­posed the fixed amount ad­min­is­tra­tive non-com­pli­ance penalty for the late sub­mis­sion and that this de­fault has con­tin­ued un­rec­ti­fied for a min­i­mum pe­riod of three months there­after, be­fore levy­ing the very large un­der­state­ment penal­ties for “fail­ure to sub­mit a re­turn”.

How­ever, these sub­mis­sions were un­sym­pa­thet­i­cally re­ceived by Sars.

Un­der the cir­cum­stances, the fore­warned and “gen­tler” in­tro­duc­tion of small ad­min­is­tra­tive penal­ties for non-sub­mis­sion of cor­po­rate tax re­turns is by no means the cur­rent prob­lem.

The real prob­lem is the harsh penalty regime, skewed against or­di­nary tax­pay­ers. If a tax re­turn is not sub­mit­ted on time it (for the com­pany, in­di­vid­ual or trust) could re­sult in up to dou­ble taxes.

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